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Significantly, neither the sale from petitioners to SPC-SC, nor
the sale from petitioners to SPC-FL, was documented apart from
the journal entries. The record is devoid of any documentary
evidence of an indebtedness (i.e., a written note or other
similar instrument) running directly from SPC-SC or SPC-FL to
petitioners. The assets acquired from SSI were, in effect,
simultaneously transferred to the ultimate users, SPC-SC and SPC-
FL, and the S corporations paid the entire consideration for such
assets from their own current operating revenues directly to SSI.
Petitioners reported no interest income and claimed no interest
expense for the amounts allegedly paid on their behalf by SPC-SC
and SPC-FL to SSI or SCNB.
Moreover when SPC-SC and SPC-FL missed payments to SSI due
to poor cash-flow, SSI elected not to enforce the acceleration
clause in the S/B and S/S/S notes against petitioners. Rather,
SSI revised the terms of the notes and never called on
petitioners to pay. From such evidence we infer that SSI did not
look to petitioners to pay the indebtedness--rather, SSI looked
to the ultimate owners of the business and assets for payment;
i.e., SPC-SC and SPC-FL. Consequently, petitioners' role in the
transactions was, at best, indirect.25
25 Furthermore, with respect to the SPC-FL transaction, the
record contains additional evidence that in substance SSI sold
its Florida operating assets directly to SPC-FL. Form 8594,
filed with SPC-FL's 1990 Form 1120S, indicates that the assets in
(continued...)
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